Spain is analyzing Saudi Telecom Co.’s plan to become Telefonica SA’s largest shareholder, Prime Minister Pedro Sanchez said, balancing a welcome for foreign investment with being wary of “undue influence.”
(Bloomberg) — Spain is analyzing Saudi Telecom Co.’s plan to become Telefonica SA’s largest shareholder, Prime Minister Pedro Sanchez said, balancing a welcome for foreign investment with being wary of “undue influence.”
“The government is analyzing the investment operation thoroughly,” Sanchez said on Friday at an event in Madrid. “We will guarantee that at all times national defense and security, understood in a broad sense, will be safeguarded. We also guarantee that any foreign investment will not exceed the limits that would involve undue influence over strategic companies or access to critical technologies.”
Sanchez, who didn’t mention the firms by name, said in his first comments since the deal was announced last week that interest from large international investors in Spanish companies is “always good news.”
In what’s one more test of Europe’s appetite for investment from Gulf states, Saudi Telecom plans to take a nearly 10% stake in Telefonica for about $2.25 billion as the struggling Madrid-based carrier prepares to lay out a new strategy for future growth. If approved, the stake purchase would turn Saudi Telecom into Telefonica’s largest shareholder, surpassing Banco Bilbao Vizcaya Argentaria SA, Blackrock Inc. and CaixaBank SA, which each own less than 5%.
At the start of the Covid-19 pandemic, Spain introduced restrictions on foreign investments by entities from outside Europe to protect companies whose valuations had plummeted. The government recently amended the rules, lowering the threshold for which authorization is required from 10% to 5% for companies related to defense.
“The government has the necessary instruments to protect its national sovereignty and its strategic interests, such as the access to critical technologies particularly in the area of security and defense,” Sanchez said. “Spanish legislation on control of foreign investments is among the most rigorous in Europe.”
Telefonica is a provider of systems and equipment to Spain’s military and defense ministry, according to the government.
Shares of Telefonica were little changed in Madrid trading on Friday. The stock has climbed about 16% this year.
In his speech, which evolved around the topic of strengthening free trade, Sanchez argued that the European Union has to launch a new commercial expansion based on consolidating and diversifying its ties abroad.
“This expansion should have as its main objective those countries that share with us principles, values and also interests,” he said.
The Saudi firm’s planned holding, which consists of a 4.9% stake in shares and an additional 5% through financial instruments, stirred debate about the protection of strategic assets.
Saudi Telecom is Saudi Arabia’s largest telecommunications company. Most of it is owned by a sovereign fund through which Crown Prince Mohammed bin Salman aims to wean the economy off its dependence on oil.
Telefonica earlier this month described Saudi Telecom’s move as “friendly,” noting its “support for the management team, Telefonica’s strategy and ability to create value.”
(Updates with share performance in eighth paragraph, additional comments from Sanchez in 10th)
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